Black Economic Empowerment Blog

King III

March 01, 2010

King III's effective date is today. Time to get those boards in shape. This is a repost from last November.

The long awaited King III report was launched on September the 1st this year and
will come into effect on the 1st of March, 2010.It is expected that King III will assist
companies in their compliance with the new Companies Act that should be
promulgated in July 2010.

King III is a framework that all
companies should follow in their pursuit of good governance.Its ambit has been extended to all entities
regardless of the manner and form of incorporation in any sector, public,
private or non-profit.It aims to set
standards for leadership, sustainability and corporate citizenship.Instead of legislating the requirements (as
the Americans have done with the Sarbanes-Oxley Act) it instead opts for an “apply or explain” regime.This then allows boards to make decisions
that might not be in keeping with King III recommendations but are in fact in
the best interests of that entity.The
rationale behind these decisions are then required to be recorded to satisfy
the stakeholders in that entity.King
III is at pains to point out that the ultimate compliance officer are the
stakeholders.

Whilst King III is applicable to all
entities, because of its intrinsic relevance to boards and board members its
BEE application is limited to those entities that are generic entities.

From a board perspective the
management element is concerned with black representation, both from a voting
rights perspective and the percentage of black people on those boards.The table below shows the DTI’s generic
management code with the top management aspect eliminated as this is not
significant to King III.

Management Control (top management excluded)

Description

Compliance Target

Board
participation

Exercisable
voting rights of black board members using the adjusted recognition for
gender (ARFG)

50%

Black
executive directors using the adjusted recognition for gender (ARFG)

50%

Bonus
points

Black
independent non-executive board members

40%

King III does not make any specific
reference to voting rights but it is very vocal about the percentage of
non-executive and executive directors.It recommends that each board should have a minimum of two executive
board members (who should at least be the CEO and CFO) and that the majority of
the board should be non-executive.The
thinking behind this is that an executive director should not be in a position
to exercise an undue influence over other executive directors who are employees
of the company.Furthermore the majority
of non-executive directors must be independent.One of these independent non-executive directors must be the chairman.

If a board is pursuing points under
the management element they might want to follow this example of a board of
five people.

Each director should have an equal
number of votes

At least two of the directors should
be black women

If there are two executive directors
one of them should be a black woman

Of the remaining directors two
should be independent non-executive directors and one of those should be the
chairman.

One of the independent non-executive
directors must be a black person

We
will be hosting a breakfast session in March on King III and BEE.If you would like more information email me.

There are a few other acts that have a bearing on the behaviour of directors. I am going to do a lot more research on this and post something as soon as I have - I think it might be found within the King report.